Aloridge Pty Ltd v Christianos

916 Pty Ltd [2004] NSWSC 710 Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789 Re Creative Memories Australia Pty Ltd [2013] NSWSC 652 Re Darin (as administrators of Palamedia Ltd) [2010] NSWSC 451 Re DH International Pty Ltd [2013] NSWSC 1120; (2013) 95 ACSR 578 Re Ethan Minerals Ltd [2011] NSWSC 899 Re HPI Australia Pty Ltd [2008] NSWSC 1106 Re Kala Capital Pty Ltd [2011] NSWSC 1253 Re Newman Rivergums Village Operations Pty Ltd [2015] WASC 443 Re Nillumbik Community Church Inc [2010] VSC 136 Ross v GNC Homes Pty Ltd [2015] SASC 168; 110 ACSR 60 Sliteris v Ljubic [2014] NSWSC 1632 Smolarek v McMaster (as administrator of Eznut Pty Ltd) [2006] WASCA 216 Smolarek v McMaster as administrator of Eznut Pty Ltd (No 2) [2008] WASCA 234; 3 BFRA 419 Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; 19 ACLC 1979 St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd [2004] NSWSC 851; 210 ALR 265 Weinstock v Beck [2013] HCA 14; 251 CLR 396 Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; 162 CLR Wilson v Manna Hill Mining Company Pty Ltd [2004] FCA 1663; 51 ACSR 404 Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; 139 CLR 410 Category: Principal judgment Parties: Plaintiff - Condor Blanco Mines Ltd Defendant - Domenic Calabretta Representation: Counsel: Plaintiff - Mr DA Smallbone with him Mr J Wheeldon Defendant - Mr S Golledge

Solicitors: Plaintiff - W Advisers Pty Limited Defendant - Piper Alderman File Number(s): 2016/226585 Publication restriction: Nil

Judgment

1. BARRETT AJA: Condor Blanco Mines Ltd ("Condor") was incorporated in 2010 and admitted to the official list of Australian Securities Exchange Ltd ("ASX") in 2011. Since that time, its securities have been listed for quotation on the stock market operated by ASX. Trading suspensions have been imposed on several occasions. Condor's principal activities have been associated with mining exploration in South America.
2. The central questions in the present proceedings are whether the defendant, Domenic Calabretta, was validly appointed administrator of Condor under Part 5.3A of the Corporations Act 2001 (Cth) on 4 July 2016 and, if he was, whether the voluntary administration should be terminated.
3. The current action is brought by Condor alone, as plaintiff. The circumstances in which it has initiated the proceedings will be mentioned presently. Condor seeks a declaration that Mr Calabretta's appointment as administrator was invalid, void and of no effect or, in the alternative, an order that the administration end.
4. Mr Calabretta is the sole defendant. He takes an essentially neutral stance on the substantive issues, in that he neither consents to nor opposes the grant of the relief just described. Mr Calabretta did, however, give evidence and appear by counsel in order to make submissions to the court.
5. In accordance with directions made by Brereton J, steps were taken to identify creditors and to notify them of the proceedings. No creditor indicated an intention of appearing and none sought to appear at the hearing.

The grounds relied on by Condor

1. At the time of the purported appointment of Mr Calabretta as voluntary administrator on 4 July 2016, two directors of Condor were in office. They were Glen Darby and Timothy Stops. Mr Darby had been a director since the establishment of the company. He was previously managing director but relinquished his executive role on 20 May 2015. Mr Stops was appointed to the board on 28 June 2016. One of the issues in the case is whether those two persons in fact acted in a particular way on 4 July 2016 and, if so, whether their action was effective to cause Mr Calabretta to be duly appointed as administrator. Another issue goes to the purposes underlying the appointment of Mr Calabretta (if he was, in reality, appointed) and the propriety of those purposes.
2. Relevant to the parties' controversy are two particular provisions of the Corporations Act 2001. The first is s 436A(1): "A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that: (a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and (b) an administrator of the company should be appointed.
3. The other provision is s 201A(2): "A public company must have at least 3 directors (not counting alternate directors). At least 2 directors must ordinarily reside in Australia."
4. Condor advances five grounds in support of the grant of the relief it seeks: 1. That, as at 4 July 2016, the board of Condor was incapable of functioning because the number of the directors in office was below the minimum prescribed by s 201A(2). 2. That, as a matter of fact, no resolution of the board of Condor was passed on 4 July 2016 (or at all) as contemplated by s 436A(1). 3. That, if a resolution of the board was passed on 4 July 2016 in terms referred to in s 436A(1), the directors voting for the resolution did not hold an opinion of the kind described in s 436A(1)(a). 4. That, if a resolution of the board was passed on 4 July 2016 in terms referred to in s 436A(1) and the directors did hold the s 436A(1)(a) opinion, the resolution was passed for an improper purpose. 5. That, if voluntary administration was validly initiated, it has become or is becoming an abuse of Part 5.3A.
5. Ground (1) took on a somewhat different complexion when, at the conclusion of submissions, counsel for Mr Calabretta sought and was granted leave to file an interlocutory process claiming an order under s 447A or s 1322(4) curing any defect or irregularity affecting his appointment and arising from the circumstance that the number of directors in office was smaller than the minimum allowed by s 201A(2). That application causes Ground (1) to be, as it were, a discrete issue requiring attention only if the case in favour of the invalid appointment contention is not made out on some other ground.

Issues

1. Ground (1) raises issues of statutory construction that have been recognised, at least by implication, in several earlier cases [1] but not directly confronted or decided, namely, whether the reference to "the board" in the opening words of s 436A(1) is a reference to a "board" constituted in a way that conforms to the applicable s 201A specification or, rather, to a "board" which, although for the time being not so complying [2] , is capable under the company's constitution of acting in the way that s 436A(1) contemplates; and whether s 201A in truth prohibits all action by a directorate of less than the statutory minimum. As I have said, attention to this question may be deferred until after the issues raised by Grounds (2) and (3) have been determined.
2. Ground (2) raises an issue of fact alone, namely, whether Mr Darby and Mr Stops both signed the two documents on 4 July 2016. The factual inquiry is confined to the actions of Mr Stops.
3. Ground (3) recognises that although, on its face, the s 436A(1) precondition is satisfied if a resolution records an opinion of the directors voting for the resolution that the company is insolvent (or is likely to become insolvent at some future time), the section in reality imposes by implication a requirement that the directors voting for the resolution hold an opinion which is "bona fide and genuinely formed". These are words used by Merkel J in Kazar v Duus [1998] FCA 1378; 88 FCR 218 in a passage approved in later cases including, in particular, Smolarek v McMaster as administrator of Eznut Pty Ltd (No 2) [2008] WASCA 234; 3 BFRA 419 where Pullin JA said with the concurrence of Wheeler JA and Le Miere AJA in at [55]-[56] (citations omitted): "The opinion referred to in s 436A must be bona fide and genuinely formed. A concluded opinion, rather than a tentative opinion, is necessary. If a bona fide opinion is genuinely formed as to 'actual', 'likely' or 'actual or likely' insolvency, that opinion will satisfy the requirements of s 436A. The requisite opinion is that of the directors voting for the resolution, rather than that of its individual members). The ultimate task of the court is to determine, having regard to the actual facts and circumstances, whether on the balance of probabilities the opinion required to be formed by the repository of the power as a condition of its exercise has been formed. Statements as to subjective intention are relevant, but the court must approach its task of classification of the conduct in question objectively."

Condor's board of directors

1. The agenda for the general meeting of Condor scheduled to be held on 5 July 2016 was confined to proposed resolutions for the removal of the three directors in office when the notice convening the meeting was issued (27 May 2016) and the election of three other persons to be directors.
2. The three directors in office when the notice of general meeting was issued were Mr Darby, Lia Darby (Mr Darby's sister) and Michelle Feruglio. Two of them (Lia Darby and Ms Feruglio) resigned before the date appointed for the meeting. Lia Darby resigned on 28 June 2016, on which day Timothy Stops was appointed a director by the continuing directors. Ms Feruglio resigned on 30 June 2016. Three directors were therefore in office at all material times up to 30 June 2016, at which point the number of directors in office fell to two.
3. At the general meeting held on 5 July 2016, a resolution removing Mr Darby from office was passed. In addition, it is accepted in these proceedings that Mr Stops ceased to hold office as a director at the commencement of the general meeting by operation of article 11.4(b) of the company's constitution. That article states that a person appointed to fill a casual vacancy (as Mr Stops was) "holds office only until the next general meeting of the Company and is then eligible for re-election". There was no resolution for re-election of Mr Stops at the 5 July 2016 general meeting.
4. The persons elected as directors at the 5 July 2016 general meeting were Joshua Farquhar, Sarah Miles and Jay Stephenson. They constituted the board of directors when these proceedings were commenced and it is at their instigation that Condor seeks the relief to which I have referred. If the true position is that Condor is under administration, its directors are precluded by s 437C of the Corporations Act from functioning as directors except with the written approval of the administrator. In order to facilitate determination of the important question of the company's status, Mr Calabretta gave a written approval to enable the directors to prosecute the proceedings for Condor, in case there should otherwise be an impediment to their doing so.

Events before 4 July 2016

1. Condor had been through a period of particular turbulence in the lead-up to the purported appointment of Mr Calabretta.
2. On 25 September 2014, Condor announced to ASX a placement of 45 million shares at 2.5 cents each "in escrow to EMC (Nominees) Pty Ltd pending the finalisation of confidential agreements on funding, project acquisitions and/or vendor consideration to un-related and un-associated parties". The announcement stated, "shares will be cancelled on any transaction that does not proceed".
3. On 1 March 2015, Condor announced to ASX that a further 50 million shares had been placed at one cent each "in escrow" pending an event or events described in precisely the same way as the 25 September 2015 announcement. Again, there was a statement that shares would be "cancelled on any transaction that does not proceed".
4. On 1 May 2016, Mr Farquhar, a holder of shares in Condor (and one of the persons now in office as a director following the general meeting of 5 July 2016), made an application to the Takeovers Panel under s 657C(2) of the Corporations Act for a declaration of unacceptable circumstances in respect of the issue of 50 million shares referred to in the announcement of 1 March 2015. The President of the Panel made an interim order in respect of those shares on 3 May 2016.
5. On 6 May 2016, ASX suspended official quotation of securities of Condor. ASX later asked questions of Condor regarding both the September 2014 and March 2015 share issues. Condor replied that 17,062,640 of the 45 million shares and the whole of the 50 million shares had been issued "in escrow" and had been cancelled. The balance of the 45 million shares, being 27,937,360 shares, was said to have been issued to named persons, including Minesweeper Pty Ltd. Condor's reply did little to elucidate the concept of shares being issued to a nominee "in escrow" for later placement under "confidential agreements on funding", failing which they would be "cancelled".
6. On 30 May 2016, the Takeovers Panel made a declaration of unacceptable circumstances in respect of the acquisition of both the 45 million shares and the 50 million shares (representing respectively 33.24% and 29.15% of Condor's score capital at the relevant time) because the effect of the escrow arrangements was that EMC (Nominees) Pty Ltd and Condor itself each came to control more than 20% of the voting power in Condor. The Panel ordered that the 50 million shares and the unplaced balance of the 45 million shares be cancelled and that Condor make a corrective announcement to ASX. An order was made prohibiting voting of some of the 27,937,360 shares actually placed.

Events on 4 July 2016

1. At the commencement of 4 July 2016, therefore, Condor was in a position where shareholders would, at 11am the next day, meet to consider proposals to remove Mr Darby from the board and to install three new directors. There was, however, uncertainty whether the meeting would proceed at the appointed time. The Takeovers Panel had before it an undetermined application by ASIC for an order postponing that meeting. With that background in mind, it is necessary to trace events that occurred on 4 July 2016 up to the point at about 6.00pm at which action was taken to appoint Mr Calabretta as administrator.
2. At 9.31 am, Mr Darby sent an email to Michael Stafford, solicitor, saying that Mr Stops had been "in and out of hospital over the weekend and probably today with some serious health issues" and "looks to be on his deathbed". Mr Darby asked if Mr Stops' health condition would be a cause for adjourning the forthcoming general meeting. Mr Stops was to be the chairman of the general meeting. He had been admitted to hospital at 6.25 on the morning of Saturday 2 July 2016 and had remained there until about 4.50 pm, returning for further consultation later that night for a short period.
3. At 10.33 am on 4 July 2016, an officer of the Takeovers Panel sent an email to Condor officers asking for the proxy count for the forthcoming general meeting, with particular reference to certain named shareholders. The Panel asked that the information be provided by 11am. Mr Darby replied at 10.44am that it would not be ready by 11am.
4. At 10.53 am, Mr A E Vrisakis, a solicitor instructed by Mr Darby, emailed the Panel submitting that the general meeting should be postponed until the conclusion of the Panel proceedings. The email referred to Mr Stops' admission to hospital and Ms Feruglio's recent resignation from the board.
5. At 11.30 am, Mr Calabretta received a phone call from David Sorban, a solicitor, who said that he had "a referral for a potential administration". The solicitor asked whether Mr Calabretta could meet Mr Darby that day as Mr Darby wished "to potentially appoint a voluntary administrator to the company Condor Blanco Mines Ltd" (these are words appearing in Mr Calabretta's affidavit). Mr Calabretta received a like call at about the same time from John Kukulovski, a business adviser with whom he was acquainted. Mr Kukulovski also wanted to set up a meeting between Mr Darby and Mr Calabretta later in the day.

The signing of appointment documents - Ground (2)

1. I turn now to factual matters of particular relevance to Issue (2). Those matters go to the question whether Mr Darby and Mr Stops, the two directors then in office, signed two documents dated 4 July 2016, one headed "Resolution of Board of Directors" and the other headed "Instrument of Appointment of Administrators". Under Condor's constitution, a resolution in writing signed by all the directors for the time being is as valid and effectual as a resolution passed at a meeting of the directors. The content of the "Resolution of Board of Directors" document signed by Mr Darby and Mr Stops is: "THAT in the opinion of the directors the company is insolvent or is likely to become insolvent at some future time and that a voluntary administrator should be appointed to the company under section 436A of the Corporations Act 2001. THAT the company appoint Domenic Calabretta of Mackay Goodwin as Administrator pursuant to Section 436A of the Corporations Act 2001. THAT the company execute, in accordance with the Corporations Act 2001, an Instrument of Appointment of Administrator, and, for the purpose thereof, the undersigned, being the board of directors of the company, is hereby authorised to execute on behalf of the company the Instrument of Appointment of Administrator."
2. The documents were prepared in Mr Calabretta's office and, as typed, had spaces for the signatures of Mr Darby, Ms Feruglio and Mr Stops. In each signed document, the name of Ms Feruglio and the associated line for signing are crossed out (Mr Calabretta explained that he had prepared the document from search results and did not know of Ms Feruglio's resignation until informed by Mr Darby when they first met). Apparent signatures of Mr Darby and Mr Stops appear in the spaces provided for signatures of those persons. There is no suggestion that the signature of Mr Darby is otherwise than genuine.
3. There is, however, evidence that Mr Stops did not sign the document. That evidence was given by Ms Stops himself. He deposed on affidavit that the signature on the documents "looks" to be his but that he was "certain" that he had never seen or read either document before seeing them on 15 August 2016. Furthermore, he deposed that he had been shown a photograph of a person he had been told was Mr Calabretta (which photograph was annexed to his affidavit) and that he had never met, seen or spoken with the man in the photograph.

The solvency opinion issue - Ground (3)

1. In relation to Ground (3), Condor's principal contentions are that Mr Darby had, on two occasions shortly before 4 July 2016, been party to board resolutions recording an opinion that Condor was solvent, that Mr Stops had been party to one such resolution and that the seemingly inconsistent opinion recorded in the written "Resolution of Board of Directors" of 4 July 2016 was not a genuine opinion formed in good faith. In relation to Mr Stops there is an added contention, namely, that he had never acquired any knowledge about the financial position of the company and, as a matter of fact, did not form any opinion on the subject of solvency.
2. As the "Resolution of Board of Directors" document shows, the opinion therein expressed by the signatories was that, at the time of the resolution, the company was either insolvent or likely to become insolvent at some later time. A finding that, at the time of signing, the directors did not genuinely and in good faith hold an opinion that the company was then insolvent will therefore not result in a decision in favour of Condor on Issue (3) if there is, in addition, a finding that the directors genuinely and in good faith held an opinion that the company was then in such a condition that it was likely to become insolvent at some later time. Also, of course, the relevant inquiry is as to each assenting director's opinion. The actual state of affairs prevailing is relevant only to the extent that it may ground inferences as to the opinion a director held and the genuineness of that opinion. The matter was put thus by Weinberg J in Downey v Crawford [2004] FCA 1264; 51 ACSR 182 at 196: "[T]he question is not whether, as at that date, the company was actually insolvent, or likely to become so at some future time. It is rather whether the directors genuinely believed that this was so, and whether that belief was reasonable in the circumstances. That in turn will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint Mr Downey as administrator.
3. It is therefore necessary to consider what, according to the evidence, each of Mr Darby and Mr Stops did, before 6.00pm on 4 July 2016, to inquire into and form an opinion about the financial position of Condor. In addition, it is necessary to remember that the burden of proving that the relevant opinion was not genuinely held rests with Condor.

The s 201A(2) compliance issue - Ground (1)

1. Given the position reached on Grounds (2) and (3), it is not strictly necessary to return to Issue (1). I do so, however, for the sake of completeness, noting that the question of statutory construction is whether the "board" referred to in s 436A(1) must be a board made up of at least the minimum required by s 201A(2) and whether that section prohibits action by a directorate of less than that statutory minimum.
2. Section 201A(2) imposes an obligation by means of the word "must". The obligation is, of its nature, one which a company, viewed as a juristic person, cannot by its own actions perform. Performance depends on actions of directors or members. It is nevertheless clear that a company which, for the time being, is not in compliance with s 201A as to composition of its directorate contravenes the section, according to the concept of "contravention" adopted by the High Court in Weinstock v Beck [2013] HCA 14; 251 CLR 396. It seems to follow that, in terms of s 1311(1)(c), the company is guilty of an offence punishable by fine (see s 1311(5) and s 1312(1)). Non-compliance may also justify an ASIC penalty notice under s 1313. No provision is made for any penalty upon an officer contributing to or failing to address the default.
3. Whether or not a penalty is provided for, there is a question whether the statute intends to prohibit conduct inconsistent with observance of the statutory requirement.
4. Framed in that way, the question paraphrases language used by Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; 139 CLR 410 at 423. That was a case about the effect of statutory contravention on the enforceability of a contract. The question here is about the effect of contravention by a company of a statutory requirement regarding the composition of an organ of the company on the efficacy of acts of the organ. But the process of analysis is the same: having imposed the requirement and provided for a penalty (if, indeed, a penalty is provided for), does the statute intend merely to penalize non-compliance or is there an intention to go further and deny efficacy to acts of a non-compliant organ?
5. Another authoritative statement about the effects of statutory illegality on contracts is that of McHugh and Gummow JJ in Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; 189 CLR 215 at 227. They said that refusal of courts to enforce contracts associated with illegal activity stems not from express or implied legislative prohibition but from "the policy of the law, commonly called public policy"; and that the predominant consideration is whether, according to "the scope and purpose of the statute", the legislative purpose will be fulfilled without regarding the contract as void and unenforceable.

The improper purpose issue - Ground (4)

1. In light of the conclusion stated to this point, there is, strictly speaking, no need to address the remaining issues identified at [9] above. I nevertheless proceed to do so for the sake of completeness and turn, therefore, to Ground (4) and Condor's contention that the decision of Mr Darby and Mr Stops to appoint an administrator was infected by improper purpose.
2. Condor's contention under this heading is that the voluntary administration was engineered by Mr Darby simply as a defensive tactic against what was, by the early evening of 4 July 2016, the virtual certainty that he would be removed from the board the next day and other directors would be installed.
3. There are, in essence, two parts to that contention: first, that Mr Darby wished to see voluntary administration in place so that he could use it to promote some deed of company arrangement proposal protective of his own position; and, second, that the voluntary administration was imposed with undue haste simply to defeat the legitimate expectations of the new directors about to be installed and the actions of the body of shareholders installing them.
4. I deal first with the deed of company arrangement point. It is the contention of Condor that Mr Darby acted as he did because he wished to promote a deed of company arrangement proposal to his own advantage and needed voluntary administration as a platform. There was, however no real articulation of how any such purpose might have been achieved, beyond identifying Clean Energy Corporation as somehow potentially involved. Mr Kukolovski had told Mr Calabretta at the Empire Hotel on 4 July 2016 that he was going to see if he could help Mr Darby with the Clean Energy Corporation transaction after appointment of an administrator. Mr Calabretta's understanding was that such a transaction would involve the provision of funding by Clean Energy Corporation. Some time after his appointment, Mr Calabretta became aware that Mr Kukulovski was assisting Mr Darby put together a deed of company arrangement involving Clean Energy Corporation. Mr Darby's SMS to Mr Loone asking him to contact Mr Kukulovski about a "proposal" is consistent with this.
5. The evidence does not identify with any degree of precision what a transaction with Clean Energy Corporation might have been expected to be accomplish through a deed of company arrangement, except that it would have involved "funding" for Condor. According to Mr Loone's description, the idea that had existed since March 2016 was that Condor would acquire the assets of Clean Energy Corporation in return for Condor shares, since Condor had no money and no apparent borrowing power. That, of itself, would not have provided "funding" for Condor, although it might have created future cashflow. Importantly, however, one feature of any such transaction, as described by Mr Loone, was that Mr Darby would leave Condor as soon as it was completed.

The subsequent abuse issue - Ground (5)

1. Because there is, again, no need to decide this matter in order to determine the proceeds, I consider it only briefly.
2. Condor's contention is that events since 4 July 2016 have shown that Mr Darby is attempting to abuse the process made available by part 5.3A. The abuse is said to be revealed by proofs of debt lodged with Mr Calabretta for the purposes of the first meeting of creditors which was held soon after Mr Calabretta's appointment.
3. Particular attention is focused on the following persons who lodged proofs for the amounts indicated. Ian Leete Travelling expenses in Israel to assess acquisitions, December 2015 $1,250 Linked Businesses Pty Ltd Consulting fees $2,000 Cabcharge Taxis $1,560 David Sorrell Consulting fees relating to project acquisition $5,000 Monclar Pty Ltd Due diligence on a confidential investment $4,840 National Australia Bank Ltd Net debit balance to bank accounts $8,670 ASX Operations Pty Ltd Listing fees $14,445 ASX Operations Pty Ltd Prospectus fees $3,848 Advanced Share Registry Registry fees $4,222 AE Vrisakis Legal fees $31,145 Angel Games Pty Ltd Consultancy fees $8,000 Axina GmbH Investor relations services provided in 2011-2012 Eur 11,520 Deakin Consultancy Pty Ltd Legal services $3,850 Eakin McCaffrety Cox Legal services $25,065 Foxfire Capital Pty Ltd Management fee for capital raising $33,000 LS Services Pty Ltd Retainer and promotional services $63,800 Michael Loone Professional services $9,000 Nexia Court & Co Audit and accounting services $27,843 Odyssey Corporate Pty Ltd Consultancy fees $54,450 Proactive Investors Australia Pty Ltd Investor relations services $5,134 Sydney Accounting Practice Company secretary and accounting services $29,898 Vinsen Group Pty Ltd Consultancy services $1,100 Super Structure International Pty Ltd Consultancy services $11,000 *Dragon Fly Pty Ltd Corporate director fees (Ms Feruglio) $61,682 *Glen Darby Services and loan $326,021 *Lia Darby Service and loan $67,682 *RW Pritchard Director remuneration November 2012 to July 2013 $18,900 *Timothy Stops Director's fee $4,000

1. The entities at the end of the list denoted by asterisk are former directors and, in one case, a former director's related entity.
2. Both Mr Farquhar and Mr Calabretta included in their affidavits facts said to either support or call in question the proposition that some of the other debts might not be genuine or might be inflated. In the case of the debts claimed by directors, there was reference to provisions of the constitution and content of annual reports relied on in the light of the principle that directors may not receive financial benefits except as allowed by the constitution or approved by the company in general meeting.
3. It should also be mentioned that there is clear evidence that Mr Darby made efforts to encourage persons to create invoices and to submit proofs of debt in respect of questionable entitlements. Efforts in that direction are recorded in the affidavit of Rabi Abareh who gave evidence under the protection of a certificate under s 128 of the Evidence Act 1995 (NSW).
4. Because this issue is not determinative of the proceedings, it is sufficient to say merely that many of the items not denoted by asterisk appear to be unobjectionable, that some of them may be questionable and that none of the items referable to directors could safely be relied on without significant further investigation; also that there is evidence that Mr Darby did take steps to procure invoices and proofs for questionable entitlements.

Substantive result

1. Because Ground (3) has been made out, there will be a declaration that Mr Calabretta's appointment as administrator was invalid, void and of no effect. That being so, no occasion arises for an order that the administration end.

Matters relevant to costs

1. Condor submitted that, if the relief it sought was granted, Mr Calabretta should be ordered to pay its costs. Mr Calabretta' position is that, even in that event, he should not be ordered to pay Condor's costs because he did no more than act as a responsible administrator should act in the face of an allegation that he was not validly appointed or that the administration is an abuse of process. On that basis, he says, he should not be required to pay Condor's costs and should have indemnity out of Condor's assets for his own costs.
2. There was discussion at the hearing whether the court should proceed at this stage to address the question of costs or whether argument on costs should be deferred. There was reference to the possibility of an application for some special costs order and to a potential need to lead further evidence in support of such an application.
3. I have decided that I should record findings relevant to the costs question but invite further submissions before making any order. For that purpose, it is necessary to consider certain events that happened in the period of three weeks after Mr Calabretta's appointment.
4. On 6 July 2016, there was a meeting between Mr Calabretta and Mr Farquhar who had been elected to Condor's board the previous day. Mr Farquhar gave evidence that he and his colleagues who made up the new board had "significant misgivings" about Mr Darby's actions and that he told Mr Calabretta that they needed to "resolve the issue of your [Mr Calabretta's] appointment". Mr Farquhar said that, in order to settle that matter, Mr Calabretta should seek a court order validating his appointment.
5. Mr Farquhar wrote to Mr Calabretta on 14 July 2016. The letter referred back to the meeting on 6 July 2016 and to the view that Mr Calabretta had not been validly appointed as administrator. Two "distinct bases" for that view were stated; first, that Mr Darby and Mr Stops "could not possibly have formed a concluded or bona fide opinion about the Company's solvency or likely solvency with they signed the purported appointment resolution"; and, second, that the circumstances of the purported appointment indicated an "improper purpose" of seeking to frustrate the general meeting the following day. Mr Farquhar said that "abundant evidence" in support of these view had been given to Mr Calabretta at the 6 July 2016 meeting.

Conclusion

1. At this stage, the only order is a declaratory order as follows: Declare that the appointment of the defendant, Domenic Calabretta, as voluntary administrator of the plaintiff, Condor Blanco Mines Ltd, on 4 July 2016 was invalid, void and of no effect.
2. The question of costs is reserved.

Endnotes

1. Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789; Re Darin (as administrators of Palamedia Ltd) [2010] NSWSC 451; Re Ethan Minerals Ltd [2011] NSWSC 899; Re Creative Memories Australia Pty Ltd [2013] NSWSC 652; Re DH International Pty Ltd [2013] NSWSC 1120; (2013) 95 ACSR 578; Jack James as Administrator of ZYL Ltd [2015] WASC 57.
2. Section 201A(2) is set out above. Section 201A(1) requires a proprietary company to have at least one director and that at least one director ordinarily reside in Australia.
3. The proof is referred to at [118] below.
4. And, by searching bankruptcy records, whether any is disqualified from acting as a director on that ground: Calabretta v Redpen Developments Pty Ltd [2010] FCA 81; 183 FCR 47.
5. Language used in a different context by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 (at [4]).
6. Orders made under that section are declaratory rather than curative: Smolarek v McMaster (as administrator of Eznut Pty Ltd) [2006] WASCA 216 at [25]; Re HPI Australia Pty Ltd [2008] NSWSC 1106 at [8].
7. In some of the cases at [19] above, the plaintiff was a creditor (Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883 47 ACSR 391; Workers Compensation Nominal Insurer v Perfume Empire Proprietary Ltd [2011] NSWSC 379; In the matter of Sales Express Pty Ltd (Administrators Appointed) [2014] NSWSC 460; 9 BFRA 251). In others, where administration had been imposed by a secured creditor or someone claiming to be a secured creditor, the plaintiff was the company itself (Aloridge v Christianos [1994] FCA 972; 13 ACSR 99; Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; 19 ACLC 1979). In Australian Securities and Investment Commission v Planet Platinum Ltd [2016] VSC 120; 112 ACSR 570, the plaintiff was ASIC. In the later case of In the matter of Warwick Keneally as administrato r of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd [2015] NSWSC 937; 107ACSR 172, the plaintiff was a director. Applications under s 447C actively brought by administrators seeking a declaration of validity are commonly made ex parte to resolve doubt in the absence of any contradictor (see, for example, Glenmorton Holdings Pty Ltd v D'Aloia [2001] FCA 1331; Re ACN 101 445 916 Pty Ltd [2004] NSWSC 710; McDonald, in the matter of Pasdonnay Pty Ltd [2005] FCA 335; 53 ACSR 717; Ross v GNC Homes Pty Ltd [2015] SASC 168; 110 ACSR 60; In the matter of Beechworth Land Estates Pty Ltd (No 3) [2015] NSWSC 733; 298 FLR 233; In the matter of Ryde Ex-Services Memorial & Community Club Ltd [2015] NSWSC 125; Re Newman Rivergums Village Operations Pty Ltd [2015] WASC 443). Resort to s 447C by administrators in contentious circumstances typically occurs when some other party has initiated proceedings and the administrator seeks a declaration of validity by way of responsive cross claim (see, for example, Sliteris v Ljubic [2014] NSWSC 1632; In the matter of Live Board Holdings Ltd [2014] NSWSC 161; Australian Securities and Investments Commission v Sino Australia Oil and Gas Ltd [2015] FCA 531; 106 ACSR 575). Since s 447C empowers the court to declare "whether or not" a purported appointment was valid, a person with standing may make application for an order that the appointment was not valid (see, for example, Re Nillumbik Community Church Inc [2010] VSC 136). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 August 2016